Market Values

‘Land of Promise,’ by Michael Lind

Whatever their political party, American leaders have generally subscribed to one of two competing economic philosophies. One is a small-government Jeffersonian perspective that abhors bigness and holds that prosperity flows from competition among independent businessmen, farmers and other producers. The other is a Hamiltonian agenda that believes a large, powerful country needs large, powerful organizations. The most important of those organizations is the federal government, which serves as a crucial partner to private enterprise, building roads and schools, guaranteeing loans and financing scientific research in ways that individual businesses would not.

Today, of course, Republicans are the Jeffersonians and Democrats are the Hamiltonians. But it hasn’t always been so. The Jeffersonian line includes Andrew Jackson, the leaders of the Confederacy, William Jennings Bryan, Louis Brandeis, Barry Goldwater and Ronald Reagan. The Hamiltonian line includes George Washington, Henry Clay, Abraham Lincoln, William McKinley, both Roosevelts and Dwight Eisenhower.

Michael Lind’s “Land of Promise” uses this divide to offer an ambitious economic history of the United States. The book is rich with details, more than a few of them surprising, and its subject is central to what is arguably the single most important question facing the country today: How can our economy grow more quickly, more sustainably and more equitably than it has been growing, both to maintain the United States’ position as the world’s pre-eminent power and to improve the lives of its citizens?

Lind, a founder of the New America Foundation in Washington and the author of several political histories, acknowl­edges from the beginning that his thesis will make some readers uncomfortable. “In the spirit of philosophical bipartisanship, it would be pleasant to conclude that each of these traditions of political economy has made its own valuable contribution to the success of the American economy and that the vector created by these opposing forces has been more beneficial than the complete victory of either would have been,” he writes.

“But that would not be true,” he continues. “What is good about the American economy is largely the result of the Hamiltonian developmental tradition, and what is bad about it is largely the result of the Jeffersonian producerist school.”

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Hamiltonian development built the Erie Canal, the transcontinental railroad, the land-grant universities and the Interstate highway system. In the process, the United States became a giant, interconnected market, a place where companies like Standard Oil, General Motors, John Deere and Sears Roebuck could thrive. The government — and the American military in particular — also played the most important role in financing innovation at its early stages. The industries that produced the jet engine, the radio (and, by extension, the television), radar, penicillin, synthetic rubber and semiconductors all stemmed from ­government-financed research or procurement. The Defense Department literally built the Internet.

The United States is like “a gigantic boiler,” Sir Edward Grey, a British foreign secretary during World War I, said, according to Winston Churchill. “Once the fire is lighted under it, there is no limit to the power it can generate.” Lind’s aim is to make Sir Edward’s point in the active voice: the government has often lighted the flame, and big business has often generated the power.

And Lind has a strong case to make. He cleverly notes that Jeffersonians themselves often have a change of heart when they find themselves running the country and responsible for its well-being. As president, Jefferson altered his position on federal support for canals, roads and manufacturers. His successor, James Madison, signed a bill creating a national bank, having previously denounced the idea. The leaders of the Confederacy, after decrying centralized power, realized they needed an economic machine to finance a war and started “a crash program of state-guided industrialization from above that was more Hamiltonian than Hamilton,” Lind writes. Modern Jeffersonians, like Reagan and George W. Bush, have campaigned on spending cuts, only to expand government while in office.

For all its logical rigor, however, the book’s thesis does suffer from one basic flaw. Lind never quite explains how the United States has ended up as the richest large country in the world, with per capita income about 20 percent higher than Sweden’s or Canada’s, almost 30 percent higher than Germany’s and almost 500 percent higher than China’s. If anything, other countries have pursued more Hamiltonian policies in many ways than the United States, without quite the same success.

What, then, can explain American economic exceptionalism? Education plays an important role (and receives only sporadic mention in the book). This country long had the most educated, skilled work force in the world, which, as other economic histories have persuasively shown, helped American workers to be among the best paid.

Beyond education, the United States also has a culture that is arguably different from that of any other power — more individualistic, more risk-taking, more comfortable with the workings of the market. If you were looking for a name for this culture, you might choose Jeffersonian.

Lind, I expect, would dispute that a Jeffersonian culture has played a major role in creating prosperity. Yet readers will emerge from the 586 pages of “Land of Promise,” despite its many charms, without hearing an argument that fully engages with its opponents.

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American economic history, in Lind’s telling, has been a series of three revolutions and counterrevolutions, with each revolution tied to an actual war. The economic decision that awaited the victorious founders in the 1780s was whether to create a system that complemented the British economy by providing resources for Britain’s emerging industries and customers for its products, or to create a full-blown national competitor.

Southerners, understandably, preferred a partnership, since they had the resources, particularly cotton. The Southern view was also informed by centuries of history in which global living standards had been largely unchanged. In this zero-sum, Malthusian world, a simple agrarian economy made sense. It seemed to maximize individual freedom and avoid the pollution and concentration of power that industry brought. “While we have land to labor,” Jefferson wrote in 1782, “let us never wish to see our citizens occupied at a workbench.”

Hamiltonians put more faith in economic change and progress. They subscribed to the ideas of John Locke, the pre-­eminent political philosopher of the American Revolution, in which military power stemmed from economic growth and population growth. Hamiltonians encouraged the immigration of inventors and skilled workers (Hamilton himself was an immigrant) and pushed public support for infant industries as well as tariffs to protect them. They also advocated a modern, centralized financial system to pay for the needed investments.

The grander ambitions of the Hamiltonians largely won out, but the victory was temporary. Even as the country benefited enormously, some people did not. The changes also threatened entrenched interests and stoked classically American fears of centralization. Soon Andrew Jackson, more Jeffersonian than the namesake, was on the counterattack, opposing federal road building and closing the national bank.

These cycles have continued, more or less, for 200 years. Lincoln — a state legislator during Jackson’s time who fought for federal investment — was the great Hamiltonian of the 19th century. After the South left the Union, Lincoln, with the backing of Congress, was able to undertake an investment bonanza that Southern representatives had blocked, building rail lines, roads and colleges. Many of these programs would ultimately help industrialize the South.

Hamiltonians, obviously, did not always make the right investments. The first aviator the federal government backed was Samuel Pierpont Langley, the director of the Smithsonian Institution, whose test flights crashed into the Potomac. But the cost of such failures paled next to the returns of the successes. The military soon became the Wright brothers’ first client and allowed them, and American aviation more generally, to flourish before a private market for it existed.

Among the joys of Lind’s book are small, little-known stories like the one about the Wright brothers that have clear relevance today. I expect I will be returning to the index of “Land of Promise” with some frequency. Another joy is Lind’s attempt to rehabilitate figures to whom history has not been kind. McKinley may have had some cronyism problems, yet he also fought to modernize the American economy and was ahead of his time on civil rights. Wall Street tycoons of the 19th century like J. P. Morgan may have been rapacious, yet they also provided crucial financing for inventors like Thomas Edison. Even Herbert Hoover, whom Lind criticizes for the usual reasons, receives praise for creating the (albeit too modest) forerunners of the New Deal and World War II mobilization.

That mobilization provided the most important Hamiltonian victories since Lincoln’s time. A generation of bipartisan presidents afterward, from Harry Truman to Gerald Ford, largely accepted the world Roosevelt left them. Then came the Great Dismantling, to use Lind’s term, when first Jimmy Carter and, much more aggressively, Reagan moved toward a less centralized, more laissez-faire economy. These decades have seen far slower income growth for most Americans than the previous century.

The chapters on the most recent years are a fairly standard liberal version of events, with deregulation and modern finance as the main antagonists. If you think airline deregulation was an abomination because service can be wretched and airline bankruptcies are common, you will like Lind’s telling. If you instead prefer to concentrate on the fact that ­middle-class Americans can now afford to fly regularly or that air travel has never been safer, you will not be persuaded.

But Lind ends on a stronger note. The major problems facing the United States today, he argues, are ones that demand Hamiltonian solutions. True innovation, of the kind that lifts living standards for the masses, cannot come from lone inventors. It requires resources that only large organizations have. It also requires skilled people, be they well-educated natives or immigrants admitted because of the skills they can bring.

The notion that the United States has stopped making many large-scale investments that bring great returns is not, in Lind’s view, surprising. American economic history tends to run in cycles. Yes, our roads and bridges are dilapidated. Our broadband infrastructure is not quite world-class. Our schools, including many colleges, can no longer claim to be the finest. But the economic need for change will eventually create the political will for it. “Land of Promise” ends on as optimistic a note as the title suggests, though it also acknowledges that failure is an option.

LAND OF PROMISE

An Economic History of the United States

By Michael Lind

586 pp. Harper/HarperCollins Publishers. $29.99.

David Leonhardt, the Washington bureau chief of The Times, won a Pulitzer Prize last year for his columns on the economy.

A version of this review appears in print on May 27, 2012, on Page BR1 of the Sunday Book Review with the headline: Market Values. Today's Paper|Subscribe